Fourth Report of the Tertiary Education Advisory Commission - full report 9/58

Shaping the Funding Framework
Fourth Report
of the Tertiary Education Advisory Commission

Chapter 1: Introduction

The tertiary education system is a vital part of the knowledge society. It
plays a key role in the development of new knowledge and new applications of
knowledge while, at the same time, supporting the development of skills and the
dissemination of information and research findings. In its first report,
Shaping a Shared Vision, the Commission concluded that, in order for the
tertiary education system to contribute fully to New Zealand's development as a
knowledge society, its components must work together coherently.

The Commission believes that viewing the tertiary education system as an
integrated whole will improve the responsiveness of the system and the
development of pathways that support lifelong learning.

In its second report, Shaping the Strategy, the Commission identified
compelling reasons for the government to invest in the tertiary education
system.² Improving the ability of New
Zealanders to access new skills and knowledge, as well as supporting the
development of new knowledge and novel applications of existing knowledge, can
have important social and economic benefits for New Zealand. As The Treasury has
noted:

Better-educated people tend to be healthier. Higher levels of
education lead to lower uptake of social welfare benefits (even when available),
and, of course, through higher wages, to paying more tax. The children of
better-educated parents themselves do better at school. Individual education
levels are associated with a lower risk of crime, and there is an additional
effect from average levels of education in a community.³

Similarly, there exists significant evidence that investment in the tertiary
education system has a positive impact on the productive capacity of a
country.⁴ Furthermore, it is highly likely
that a tertiary education system left to the dictates of the market would not
deliver desirable outcomes. Further discussion of the rationales for public
funding of tertiary education and research is available on the Commission's
website.⁶

The tertiary education system is, however, currently undergoing significant
change and the funding framework must be flexible enough to enable the system to
adapt over time. Technology is contributing to the growth in open,
non-campus-based and part-time forms of learning and learning environments as
well as supporting networked research entities. This has encouraged the
development of new approaches to the teaching/learning/research relationship,
and these, in turn, produce new and co-operative ways of working. New ways of
working increasingly involve greater specialisation, both of providers and the
activities they undertake, and support widespread linkages and co-operative
relationships. Many of these relationships are innovative and operate across
traditional provider, organisational, and national boundaries.

Demographic change will also have a significant impact on the tertiary
education system. As already identified by the Commission,7 relevant changes are
likely to include:

• a continued decrease in the population that makes up the core age group for
  tertiary education until 2003, when it will begin to increase again;
• rapid growth in the number of 10- to 16-year olds over the next five years -
  particularly in Auckland;
• continued increases in ethnic diversity and younger age structures, and
  accelerated growth of non-European ethnic groups such as Maori, Pacific, and
  Asian peoples;
• a large sustained increase in the proportion of older persons over the next
  two decades, including an increase in numbers of older persons in the workforce;
• a continuing shift in employment away from the goods-producing sector; and
• an increase in demand for skilled workers.

By 2016, nearly half of all learners and an increasing proportion of New
Zealand's working-age population will identify as being of Maori, Pacific, or
Asian descent. New Zealand's economic and social success will be influenced to a
greater degree by their skill level. The tertiary education system is therefore
likely to face a continuing shift in the mix of its student population.

Progressively more learners are likely to re-enter formal learning
environments throughout their lives. These learners will not necessarily be
looking for qualifications but for recognition of the learning gained through
work, cultural, and life experiences, and for opportunities to fill gaps in
their knowledge and skills. These trends bring pressure on the system to
recognise learning that occurs outside of formal learning institutions, and to
recognise different cultural perspectives of learning and knowledge.

The Commission has recommended a more strategic approach to the organisation
and operation of the tertiary education system in order to address the trends8
affecting it, to provide system steering, and to contribute to the achievement
of national strategic goals and tertiary education priorities.

The national strategic goals identified by the Commission are: economic
development, innovation, social development, environmental sustainability, and
fulfilment of obligations under the Treaty of Waitangi.⁹ The priorities for the tertiary education system
are:¹⁰

• building the quality of learning while supporting New Zealand's high levels
  of participation in tertiary education;
• focusing on the two ends (top and bottom) of the tertiary education system
  including:
  • enhancing research quality and capacity, and linkages between tertiary
    researchers and the wider community, which will promote effective and useful
    research that can enhance New Zealand's social and economic wellbeing; and
  • building stronger bridges into tertiary education, which will ensure that
    the tertiary education system's potential to raise the quality of life for all
    people is fully realised; and
• developing the skills and environment for a knowledge society to complement
  the first two priorities and to ensure that New Zealand's tertiary education
  system can effectively contribute to the development of social and economic
  prosperity.

Addressing trends and achieving goals and priorities requires the effective
use of a range of levers, of which the funding framework will be one. It is not,
however, the only lever that can be used to bring about change. Other levers the
Commission has already recommended include:

• charters and profiles, to be used as a means of identifying and recognising
  the special character, programmes, and activities of providers and the linkages
  with their communities of interest; and
• a quality test, which determines whether a programme or activity is of
  sufficient quality; and a desirability test, which determines whether the
  programme or activity is desirable or whether it contributes sufficient net
  benefit to the country and to the tertiary education system.

Government funding accounts for the bulk of most providers' total income. For
this reason, the way that funding is allocated and the constraints and rules
around its allocation are extremely important. An effective and efficient
funding framework is one that enables the steering of the system to achieve the
national strategic goals and tertiary education priorities, encourages
specialisation and linkages, and ensures accountability to stakeholders.

In order to enhance effectiveness, the funding framework must also be
supported by appropriate incentives, rewards, and sanctions. These could include
changes to the other instruments to produce more stringent quality-assurance and
audit practices, improved decision making by both learners and providers,
improved governance, and more rigorous accountability regimes.

While the goals and priorities for the tertiary education system may change
and develop over time and provide other areas of focus, the funding framework
must consider the varied purposes of tertiary education and the needs of all
stakeholders. The impact of funding (both public and private) on the viability,
capacity, and capability of individual providers, on the tertiary education
system as a whole, and on the cost of learning for students, are all major
issues.

The Commission is aware that developing instruments to support a
high-quality, strategically focused tertiary education system may require
trade-offs. These will need to be made in relation to the principles,
objectives, goals and priorities proposed by the Commission. Furthermore, with
the resource constraints currently operating on the tertiary education system,
any trade-offs need to be transparent and defensible.

Any changes to the funding framework, therefore, must be managed in a way
that ensures the achievements of the current funding systems are retained but
that their weaknesses are addressed. The strengths and achievements of the
current system include diversity of provision, high levels of participation,
high levels of programme completion, and increased diversity of people
participating in the tertiary education system. Implementing a new funding
framework must be done in a holistic way, with consideration given to the
dynamic impact of one area's changes on all other parts of the system.

Recommendation 1

The Commission recommends that a new funding framework for tertiary education
be developed to support the government's strategic vision for the tertiary
education system.

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Footnote(s):

2

Shaping the Strategy, p. 15.

3

The Treasury (2001b), p. 24.

4

See, for example, Barro and Sala-I-Martin (1995), Gemmell (1997), Acemoglu
(2001).

5

For discussions of market failure in the tertiary education system, see
Patrinos (1999).

6

http://www.teac.govt.nz also available from the Commission on request.

7

Shaping the System, pages 16 and 17.

8

Shaping the System, Chapter 3.

9

Shaping the Strategy, p. 14.

10

Ibid., pages 18 and 29.